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LONDON-Lloyd's of London has received approval from a U.K. court to start collecting 350 million pounds ($569.1 million) from members who refused to reinsure their old-year liabilities into runoff company Equitas Ltd.

Justice Colman of the U.K. High Court last week delivered the second part of a ruling on a case testing the "pay now, sue later" clause in members' contracts. He denied members' assertions that they are not liable to pay their Equitas reinsurance bills because Lloyd's operated fraudulently.

Justice Colman delivered the first part of the ruling in February, striking members' allegations that the structure of Equitas is invalid (BI, Feb. 24). Together, the decisions mean that dissenting Lloyd's members must pay their losses before taking legal action against the market.

Although litigating members have vowed to appeal the decision, Justice Colman has allowed Lloyd's to proceed with collecting outstanding funds from about 1,300 non-paying members.

Ron Sandler, chief executive of Lloyd's, said the ruling "upholds the legal basis for the reinsurance into Equitas and allows Lloyd's to pursue, for the benefit of members of the Society, those members who are yet to pay their Equitas premium."

Nevertheless, the litigating members will go ahead with an action claiming Lloyd's has acted fraudulently, said Catherine Mackenzie Smith, chairman of the United Names Organization.

Part of the recovered losses will be used to pay off Lloyd's 300 million pounds ($487.8 million) bridge loan from a conglomerate of banks, led by Citibank International P.L.C., which according to a Lloyd's spokesman has been "deployed extensively." The full extent of its use will be clearer in the Corporation annual report and accounts, to be published next week.

The 450 non-paying U.S. members will not be chased by Lloyd's debt collectors until litigation in U.S. courts has been settled. Lloyd's would not release how much U.S. members owe the market. Three cases, including one beginning in Texas this week, remain.